Section 139A(5) of Income-tax Act, 1961 provides that every taxpayer shall mandatorily quote its PAN in all documents pertaining to certain transactions (PAN reportable transactions) as prescribed by CBDT. Default thereof attracts penalty of INR 10,000 on each occasion. If the taxpayer does not possess PAN, it may furnish a declaration in Form 60 givingdetails of the transactions and other prescribed details.
Recommendations of the Special Investigation Team on Black Money was that quoting of PAN should be made mandatory for all sales and purchases of goods and services where the payment exceeds R1 lakh. The recommendation was also accepted by the Finance Minister in his Budget Speech of 2015.
CBDT, vide Press Release announced that in order to bring a balance between burden of compliance on legitimate transactions and the need to capture information relating to transactions of higher value, quoting of PAN shall be made compulsory for all sales and purchases of goods and services where payment exceeds INR 2 lakhs and monetary limitsof other PAN reportable transactions shall also be revised.
Pursuant thereto, CBDT has recently notified the substitution of the existing Income-tax Rules regarding mandatory quoting of Permanent Account Number (PAN) vide Notification No. 95/2015 dated 30-12-2015. The substituted rules specify transactions pertaining to which every person shall be required to quote his PAN number. The Central Government, the State Governments and the Consular Offices have been excluded from the purview of the new rules.
Exceptions have been made for non-residents with respect to certain transactions. The amended rules for mandatory quoting of PAN have been made effective 1st January 2016.
As an overview, the new Rules primarily provide for the following:
- a) List of PAN reportable and monetary threshold for such reporting transactions (Rule 114B)
- b) List of specified persons responsible to ensure PAN is duly quoted or in absence of PAN, a declaration in Form 60 with complete details is furnished (Rule 114C)
- c) Mode and manner of furnishing by certain specified persons of half yearly statements containing particulars of declarations received in Form 60 (Rule 114D);
- d) Further, the new Rules have also modified AIR furnishing requirements connected with PAN reportable transactions with effect from 1 April 2016. (Rule 114E)
Know your PAN Structure
Before we proceed to analyse & discuss the new provisions. Let’s discuss the structure & Digits of PAN:
PAN is having 10 characters consist of digits as well as alphabets. Structure of PAN is given below:
A A A C S 1 2 3 4 A
• First 3 Alphabets (AAA) and last 4 digits (1234): This is running series which prevents allotment of more than one PAN to assessee with same name.
• Fourth character: This represents the type of assessee. Such as “C” for Company. Below is the meaning of 4th Digit of PAN
- C: Company
- P: Person
- H: HUF
- F: Firm
- A: AOP
- T: Trust
- B: BOI
- L: Local authority
- J: Artificial juridicial person
- G: Govt
• Fifth digit: This represents the first character of assessee surname/last name.
Analysis of Changes introduced w.e.f 01 Jan 2016
The changes made by way of the Notification visà-vis the erstwhile provisions have been tabulated below:
A chart highlighting the key changes to Rule 114B of the Income-tax Act is attached.
NATURE OF TRANSACTION
MANDATORY QUOTING OF PAN (RULE 114B)
Sale/ purchase valued at Rs.5 lakh or more
i. Sale/ purchase exceeding Rs.10 lakh;
ii. Properties valued by Stamp Valuation authority at amount exceeding Rs.10 lakh will also need PAN.
Motor vehicle (other than two wheeler)
Time deposit exceeding Rs.50,000/- with a banking company
i. Deposits with Co-op banks, Post Office, Nidhi, NBFC companies will also need PAN;
ii. Deposits aggregating to more than Rs.5 lakh during the year will also need PAN
Deposit with Post Office Savings Bank
Sale or purchase of securities
Contract for sale/purchase of a value exceeding Rs.1 lakh
Opening an account (other than time deposit) with a banking company.
All new accounts.
i. Basic Savings Bank Deposit Account excluded (no PAN requirement for opening these accounts);
ii. Co-operative banks also to comply
Installation of telephone/ cellphone connections
Exceeding Rs.25,000/- at any one time (by any mode of payment)
Cash payment exceeding Rs.50,000/-.
Cash purchase of bank drafts/ pay orders/ banker's cheques
Amount aggregating to Rs.50,000/- or more during any one day
Exceeding Rs.50,000/- on any one day.
Cash deposit with banking company
Cash aggregating to Rs.50,000/- or more during any one day
Cash deposit exceeding Rs.50,000/- in a day.
Cash payment in connection with foreign travel of an amount exceeding Rs.25,000/- at any one time (including fare, payment to travel agent, purchase of forex)
Cash payment in connection with foreign travel or purchase of foreign currency of an amount exceeding Rs.50,000/- at any one time (including fare, payment to travel agent)
Application to banking company/ any other company/institution for credit card
Co-operative banks also to comply.
Mutual fund units
Payment of Rs.50,000/- or more for purchase
Payment exceeding Rs.50,000/- for purchase.
Shares of company
Payment of Rs.50,000/- or more to a company for acquiring its shares
i. Opening a demat account;
ii. Purchase or sale of shares of an unlisted company for an amount exceeding Rs.1 lakh per transaction.
Payment of Rs.50,000/- or more to a company/ institution for acquiring its debentures/ bonds
Payment exceeding Rs.50,000/-.
Payment of Rs.50,000/-or more to RBI for acquiring its bonds
Payment exceeding Rs.50,000/-.
Life insurance premium
Payment of Rs.50,000/- or more in a year as premium to an insurer
Payment exceeding Rs.50,000/- in a year.
Purchase of jewellery/bullion
Payment of Rs.5 lakh or more at any one time or against a bill
Deleted and merged with next item in this table
Purchases or sales of goods or services
Purchase/ sale of any goods or services exceeding Rs.2 lakh per transaction.
Cash cards/ prepaid instruments issued under Payment & Settlement Act
Cash payment aggregating to more than Rs.50,000 in a year.
1. In case minor is entering into the specified transactions and who does not have income chargeable to Income tax, he shall quote PAN number of his father/mother/guardian.
2. PAN to be quoted in all the documents pertaining to specified transactions
3. Any person who does not have a permanent account number and who enters into any transaction specified, he shall make a declaration in Form No.60 giving therein the particulars of such transaction.
4. payment in connection with travel” includes payment towards fare, or to a travel agent or a tour operator, or to an authorised person as defined in clause (c) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999);
5. Travel agent or tour operator” includes a person who makes arrangements for air, surface or maritime travel or provides services relating to accommodation, tours, entertainment, passport, visa, foreign exchange, travel related insurance or other travel related services either severally or in package;
6. “Time deposit” means any deposit which is repayable on the expiry of a fixed period.
As per RBI Guidelines, It is Important to note that an authorised Dealers may accept payment in cash for amounts which do not exceed the amount equivalent to R50,000/- (Rupees fifty thousand only) against sale of foreign exchange for travel abroad (for private visit or for any other purpose). Wherever the sale of foreign exchange exceeds the amount equivalent to R50,000, the payment must be received only by:
- (i) a crossed cheque drawn on the applicant’s bank account, or
- (ii) a crossed cheque drawn on the bank account of the firm/company sponsoring the visit of the applicant, or Banker’s Cheque/Pay Order/ Demand Draft or
- (iii) Debit/Credit/pre-paid cards provided
(A) Rule 114D of Income tax rules Reporting of Declarations received through Form-60
1. Statement in form No. 61 containing particulars of form 60 to the Director of Income-tax (Intelligence and Criminal Investigation) or the Joint Director of Income-tax (Intelligence and Criminal Investigation) through online transmission of electronic data to a server designated for this purpose and obtain an acknowledgement number
2. Retain Form No. 60 for a period of six years from the end of the financial year in which the transaction was undertaken.
Periodicity of Reporting
Declaration received for the period
Jan to Sep
31st Oct of that year
Oct to Mar
30th April of the financial year immediately following the financial year in which form 60 is received.
(B) Rule 114E of Income tax rules: Requirement to furnish details of the specified financial transactions by way of an Annual Information Statement vide Notification 95/2015, dated December 30, 2015, CBDT has modified the rules (i.e. Rule 114E w.r.t. 285BA) related to Filing of AIR. Now the AIR return will be called as Statement of Financial Transaction (SFT), the statement of financial transaction required to be furnished under subsection (1) of section 285BA of the Act shall be furnished in respect of a financial year in Form No. 61A and shall be verified in the manner indicated therein.
These rules will be effective for the transactions entered on or after April 1, 2016. Gist of these transactions and respective specified person can be described as follows:
E-filing of AIR (SFT)
Furnishing of AIR continues to be in electronic mode subject to variation that in case of persons other than Post Master General and Registrar/Inspector General, the data needs to be transmitted online to Tax Authority’s server instead of physical furnishing of floppy/CD/DVD.
Periodicity of furnishing AIR (SFT)
The return in Form No. 61A shall be furnished to the Director of Income-tax (Intelligence and Criminal Investigation) or the Joint Director of Incometax (Intelligence and Criminal Investigation) on or before the 31st May, immediately following the financial year in which the transaction is registered or recorded.
W.e.f. April 1, 2016 all companies will be required to collect the details to file the return in Form No: 61A if they entered in any transaction as mentioned above.
1) Penalty for non-quoting of PAN (Section 272B)– If a person fails to comply with the requirement of quoting the PAN or furnish incorrect PAN then Assessing Officer may levy the penalty of R10,000.
2) Penalty for non-furnishing of statement– If a person fails to comply with the requirement of furnishing the specified statement, penalty will be of R100 per day of default. However, if he assessee receives any notice from the department for filing the statement then it shall be filed within limit of 30 days from the date of service of notice. In case of such default, the penalty shall be levied of R500 per day of default.
3) Section 277 of the Income Tax Act - False statement in verification, etc. If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable,-
(i) in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;
(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.
The above notification shall have huge impact on the business transactions. Quoting PAN will help create an audit trail of all high-value transactions by one particular individual and help the tax department determine if it is in line with the declared income of that person. This will help the government widen its tax base, curb the circulation of black money and move towards a cashless economy.
Taxpayers need to note that PAN reporting compliance on new reportable transactions has already triggered since 1 January 2016 and hence needs immediate implementation to avoid penalty consequences. There would be transitional difficulties especially for large corporates where changes in software would be required to implement the changes.
List of references
1. Press release, Govt. of India, Ministry of Finance, dated 15/12/2015
2. Notification No. 95/2015, dated 30/12/2015
3. Rule 114B, C, D & E of Income Tax Rules.